ECON 3411 Lecture Notes - Lecture 14: Economic Equilibrium, Static Analysis
19 Jan 2018
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Topic: use comparative static analysis to see the big picture! Comparative static analysis shows how the equilibrium price and quantity will change when a determinant of supply or demand changes. Scenario 1: implications for a small pc maker. Tep (cid:1005): look for the (cid:862)big pi(cid:272)ture. (cid:863) Step 2: organize an action plan (worry about details). Big picture: impact of decline in component prices on pc market. Equilibrium price of pcs will fall, and equilibrium quantity of computers sold will increase. More (cid:272)o(cid:373)pli(cid:272)ated (cid:272)hai(cid:374) of reaso(cid:374)i(cid:374)g to arri(cid:448)e at the (cid:862)big pi(cid:272)ture. (cid:863) Step 1: use analysis like that in scenario 1 to deduce that lower component prices will lead to a lower equilibrium price for computers. a greater number of computers sold. Big picture: impact of lower pc prices on the software market. Software prices are likely to rise, and more software will be sold.
